Panel: Blue Sky Thinking

People tend to think of bitcoin as either a: currency, commodity, or a payment rail

Jeff: what interested me was the technology underneath – distributed consensus. We have smart contracts, multisig, etc. But when you stack these layers bitcoin becomes a catalyst.

The core of the excitement comes from the fact that we now look at every system and ask “how can we decentralize that”

Bitcoin is the example of how we’re going to decentralize most everything

Jacob: digital identity is also having a problem moving from paper documents into the digital realm. How can we use the blockchain and public ledger to solve identity problems beyond what we have with paper systems.

Audience A: In Sweden you can get a BankID – the bank issues you are card and you download a file which you can use on your computer to identify yourself

Audience B: Here in the Netherlands they also have a digital id DigiID which you use to sign your taxes

Jacob: DigiID is only for communication between the citizen and their government. Bitcoin-like technologies will help you identify yourself without sharing any information about yourself greater than is necessary for the exchange

Jeff: Bitcoin is more like layers of an onion. Once you have decentralized currency you can have a decentralized market. But once you have a decentralized market you need decentralized identity

Ron: we’re not just decent for sake of decent, but rather to solve problems of centralized organizations.

Audience: What are the next layers after identity?

Johann: decentralization started before bitcoin. The printing press removed the monopoly of the state to control what you think and read. A lot of progress in decentralized law. Today we’re talking about decentralized finance. Finally decentralized production (e.g. 3d printing). The focus on decentralization is important, but its a means to an end, not the goal.

Bitcoin is described as being decentralized, but in some sense its centralized: there’s only one code base and we don’t want a fork.

Key problems of centralization: abuse of authority and failure of systems

Decentralized can be anti-fragile

Jeff: Decentralized systems are often less efficient but often provide resilience

Ron: There’s a new wave of decentralized applications coming online that are like bitcoin. We’re going to see a lot more of these over the next few years.

Audience: don’t we see the centralization of everything? Particularly law, many companies are all writing contracts according to UK law. There are 190 currencies and you’re not trying to create another currency that is a “centralized” global currency. In order for companies to use bitcoin they’re going to need law.

Johann: The question to ask is it centralized or a standard? Metric system is a standard. Bitcoin is a standard. You can choose to use it or not. Standardization is an efficient thing. We’ll see this year the emergence of standardized payment platforms. What you want is a single platform, like the internet, [to make payments].

Ron: one way to think of it is in terms of monopoly. As long as bitcoin is the best currency there is, it will have users. The best one will win.

Jacob: They’re all competing on merit vs. people using it because they have to.

Jinyoung: Let’s talk about stocks and bonds

Ron: stocks and bonds have huge regulation around them so we’re phrasing these coins as a token because this is legally safe

Jeff: A bitcoin is just an entity for which you are the owner. Now its value, but it could be a Mastercoin transaction. This applies to any digital property. Stocks and bonds, car, house (smart property). We like to talk about issuing USD on the block chain. [laughter] You could have options on the block chain.

Ron: You laugh, but there are several companies creating USD coin. This is already happening.

Johann: We’ll see the emergence of universal transaction platforms. We have the internet for information, but we don’t have similar for financial transactions. Examples: obviously payments, but also financial instruments, basket currencies, futures and options, any financial instrument can be put in that platform. The fundamental component is the smart contract.

Audience: what about regulation?

Jacob: regulation always follows reality. Regulators can’t regulate unless it exists and people are using it

Ron: regulators haven’t figured out bitcoin yet, it will take years before they understand everything we’re talking about in this room

Jeff: the buzz phrase is “permission-less innovation”.

Johann: we can’t wait for the regulators. We need to be proactive and develop the laws we want ahead of time and say “this is what we propose”. We’re doing this in Switzerland.

Ron: if the world had one government, they could shut it down. Thankfully there is competition among regulatory environments.

Audience: I work for a bank. People will have to work with banks if they’re going to use bitcoin. We [banks] are regulated. If we [banks] are going to work with bitcoin we have to follow regulation. The regulators are saying they won’t regulate bitcoin. So we’re in a hard position. If we start working with bitcoin then they’ll say “why are you doing all this unregulated business? We’re going to take away your license”. So we can’t just wait for regulators or try to avoid regulation, we need to actively get regulation if we’re going work with bitcoin.

Other Audience: Regulators aren’t neutral anymore – they have a stake in the system so they will defend the system from bitcoin innovation. Think about the postal system, it was very regulated years ago. I wouldn’t look forward to regulators regulating this.

Jeff: I don’t think anyone is looking forward to regulation [laughter], but its a reality of living.

Jinyoung: what are some of the other applications of bitcoin?

Jeff: smart contacts. One of the tenants is that you’re replacing human rules with mathematical rules. If your contract can be defined in terms of math rather than humans, then it can be enforced digitally.

Ron: on mastercoin we weren’t satisfied with multisig – so we created safe funds, which is a reversible transaction within one week.

Jacob: you can program the rules about the meaning of a transaction

Ron: Imagine you asked Alan Turing “what are you going to do with a computer? You just have two tapes here.”

Audience: can you explain the difference between mastercoin and colored-coin and color-party.

Jeff: mastercoin is on bitcoin blockchain itself. A sidechain is linked to the main blockchain.

Johann: off-blockchain transactions. You need to pick the right tool for the right job. Blockchains are perfect for distributed consensus. This is great for voting, etc. But sometimes you need another tool. Disadvantages of blockchain: slow and expensive. It’s in their nature. In off-blockchain systems can be faster and cheaper. Secure property and decentralized consensus is good for a blockchain. High speed transactions / micro-transactions are better for off blockchain.

Audience: Where is the volume for crowd-funding right now?

Ron: they’re all so new – we have to build them. They’ll be 1000 by this time next year [and it takes time for it to work out]

Jeff: Bitcoin is like Google in the 1980s. It takes time.

Johann: decentralization is not a binary problem. It’s a continuum. Take the internet, we say it’s decentralized but many parts are centralized. DNS is centralized, central trunk lines, routers, etc.

Audience: How do you show the health of the blockchain

Jeff: payment channels are an example: You can fit 4B intermediate transactions that setting on 2 transactions on-blockchain. It’s a continuum of solutions.

Audience: Facebook is going to do a currency, what do you think about that?

Jeff: Large companies are always going to want to do Amazon coin, Facebook coin.

Johann: at the end of the day its about economic sense. Its up to us to build better economic systems.

Audience: Who is the arbiter of trust when we want to exchange?

Ron: you choose your own arbiter. There’s a market for trust.

Johann: There’s two levels here: technological level and a human level. You can eliminate trust by mathematics, but there is a human element. There’s a transition phase first – that’s where we need banks, insurance companies, etc.

Ron: People can’t even secure their own computers

Jeff: One of my personal interests are Africa. In Africa you don’t have 24/7 internet or credit cards. If you have a feature phone w/ SMS then you can send bitcoin transactions. I’m going to be sending satellites into space that will store the blockchain.

Johann: for the first time in history we have a global delivery system: the mobile phone. If you can get your application on a mobile phone in a usable way, then anyone can use it. The vision I have is that you have a guy in the middle of nowhere who wants to have a business. Imagine a few years from now, you make a few clicks, you have a legal entity that is able to operate globally. A click later you’ve got your payment built in, you’ve got your legal framework built in. To idea to legal entity to getting customers to be minutes.

Gavin: Let me be clear, I don’t want to be king of bitcoin. OP_CHECK_MULTISIG pops an extra argument off the stack and there’s a bunch of little things like that I would like to fix.

Oleg: The consensus mechanism works very well. We’ve spent some energy fixing hard forking bugs, but really adding value to the network. For instance, adding contracts and high-level operations on the network will add value.

Jeff: A lot of the development today is not going to be in bitcoin but on bitcoin. We have the stable core layer. Bitcoin itself, if I was king for a day, I would mention coinbase commitments. You look at all the unspent bitcoins and you generate a hash value for that and you submit that to the coinbase. It’s valuable because you don’t necessarily have to download the whole blockchain to validate trust. Blockchain pruning is the most interesting change I have an idea for bitcoin

Thomas: I’m still amazed that bitcoin works [laughter]. One thing that doesn’t work yet is to have an efficient and reasonable fee market. There’s no fee market right now. You need to have software that makes the decision about fees. The minimum fees for propigation in the network has been slashed recently and we’ve been seeing a decrease in money that the miners make. So the reward mostly comes from new coins. The transaction fees have to take over. If we keep slashing the propigation fee the miners won’t have incentive.

Gavin: well we decreased the fee, but if you send a transaction with that small fee it just won’t be mined. We’re adding an RPC method to get an expected minimum fee value. It will tell you how much to get it confirmed in the next block on average. Or in the next 6 blocks. Miners are choosing to make their blocks 256kb. We reduced the defaults but we haven’t seen the block size increase. There’s a lot we have to do to change incentives to include fees in the blocks. But we have to get the transactions to the miners, thats why we slashed the relay fee.

Audience: miners are choosing to make blocks smaller, how much slower is 256k block vs. 1mb block.

Gavin: there was a paper about the cost per byte of adding data per block. Matt Peralo has a mining backbone that the pools are connected to, so maybe that changes the dynamics. I tend to be a wisdom of crowds market kind of guy. Usually the knowledge is out there for groups to make near optimal decisions. Even if people don’t really know the reason, they might be just selecting it on intuition.

Jeff: many of the miners aren’t super familiar with bitcoin. Miners also blindly upgrade to bitcoind with whatever new release is out. They don’t really have programmers. They might be profitable but they’re not investing in developers. The blocksize itself is interesting. Some people say if you remove the limits, then it will automatically converge on the optimal balance between the speed of light and the rate of orphan blocks.

Peter: I like the blocksize debate, but lets move on to something knew. [He suggests sidechains.] Mastercoin got people thinking about it. Are you into this idea?

Jeff: it’s all experimental at this point. One way and two way pegs, if you destroy a bitcoin and move it to the other chain, thats a one way peg. If you move value out and then back then that’s a two way peg. Etherium, altcoins, etc. all reduce the pressure for everything to be inside the primary blockchain itself.

Oleg: there is one blockchain in the universe, one hashrate of the universe. I don’t worry about this. I’m not worried about writing a chat application on the blockchain. The main problem with the alternative chains is consensus. If we go to the beginning about the Bz Generals problem, you figure out if everyone is on the same page if you have the biggest amount of energy amount dedicated to this. It only works when you have everyone on the planet invested towards one effect. This is the concern for any altcoin because it has the vulnerability that a certain amount of money exists that can compromise it. It bitcoin succeeds it is just a bubble that never pops. Security isn’t about the algorithm but about the amount of money that can be spent to disrupt the network.

Audience: I’m concerned about the incentives of miners once the reward drops to zero. Will the network be secured when this happens? Should we change to proof of stake?

Peter: Ed Falton: double spending possible. Dogecoin as example?

Gavin: we think of a strict separation between people who want to mine and people who want their transactions secured. If people want their transactions to be secure and they need to invest in mining, they’ll do it. If coinbase or bitpay want more security in the transactions then they will invest in mining. There isn’t a chinese wall between miners and people who want secure transactions.

Oleg: People who want to own bitcoins are basically hiring miners. The economics of block size and block fees are theoretically correct, but people don’t have much interest in doing everyday transactions in bitcoin (most is speculation). Right now the incentive to mine is there. When transaction fees start to matter then miners will recognize that. E.g. future distributed clearinghouse mesh networks. So then the miners will have faster communication, shared memory pools or whatever.

Audience: 120 BTC/day is enough to jam the network, what do you think about that?

Jeff: Well that is a linear estimation, not taking into account that the community could respond. Right now the transaction fees are so small that it’s like tipping vs. the coinbase transactions. So we can’t read too much into the existing fee behavior because there isn’t an active bidding market yet. If people see that they’re being outbid they’ll take appropriate action. In general, right now we don’t have a functioning fee market.

Gavin: you can spend a bunch of money and jam the network, but so what? Maybe it would be a successful attack once and it would be very expensive. I have a pull request to estimate the fees. Eventually by default you’ll just pay what the going rate is.

Peter: I’m dubious that no mining operators look at what the fee is.

Jeff: That would only make the network stronger. You would have spent a lot of money and the community would respond.

Peter: Payment protocol came out in 0.9. There are a lot of interesting, innovative proposals. The payment protocol was a lot of hard work to get it right, but there’s almost no user interface on top of that. What do we need more of in this area?

Thomas: we have an implementation of the payment protocol in electrum, but we’ve been working in a lot of directions so it just takes time. Payment protocol has an SSL certificate, it would be nice to decentralize that.

Jeff: Usability – only now are we seeing multisig wallets. We’re just now seeing apps that make it easy enough for my mom. The payment protocol assists in usability. Right now its all about bringing it out to the average user.

Audience: MULTISIG data bloats the transaction size. OP_RETURN too. Is there a plan to charge more for transactions that add data to OP_RETURN?

Jeff: The plan is “listen to the users”. It’s really all about the future use. I’m a big “no roadmap” kind of person. Let’s not dictate decisions from up high.

Gavin: There’s some thought about making raw multisig in a P2SH, but it would break mastercoin and counterparty because they want to see it right away. We can do a better job like white papers on how not to store data in the blockchain.

Audience: Director of multisig. We’re using multisig but we want to use OP_RETURN. Our problem with multisig is that some people are saying its not standard.

Audience: Gavin you said that the community should do what they can to improve bitcoin themselves and not wait for the foundation to make all of the changes. Despite this, we don’t see a large increase in contributors to the open-source project. What can we do to increase the contributor base?

Gavin: the number of people submitting patches seems to increase after every price bubble. We’re still learning to deal with that bottleneck. I don’t know how that compares with Linux.

Jeff: The kernel community is different in that they have 5000 developers. They have a mentorship program. Bitcoin needs a bitcoin newbies project for developers. Because you have to understand all of the parts to get the big picture to contribute in a meaningful way. Don’t look at us to solve your own problems.

Gavin: To Thomas: do you see Electrum getting enough contributors?

Thomas: not enough.

Peter: I’d love for the foundation to have a fellows program to get people into developing bitcoin. If you’re interested in that, let us know.

Jeff: I’m into mentoring so anything I could do to bring in new developers I’ll do that.

Oleg: Bitcoin is boring to read carefully, so every person that succeeds in reading it carefully or creating another implementation they read the code and translate it into another language and then they make other people more easily able to understand how it works.

Oleg: so many people start from scratch primarily to have a clean slate and know how it works. I tried to keep the API nice in CoreBitcoin

Peter: which is going to be first, bitcoin over satellite or a formal paper protocol spec.

Audience: could you change the protocol to give the developers a portion of the transaction fees?

Peter: why don’t you try submitting that pull request but you’d better move to a place where no one knows your address. We have jobs for someone who wants to get paid for bitcoin development. The community would never go for that transaction fees.

Gavin: People come to me and say “Gavin I want to give you money, but I don’t like the foundation.” For whatever reason, but I don’t want to be the king of bitcoin. If the money went to the foundation someone still has to decide how to spend it. The community would never go for that.

Peter: there’s good reasons for the programmers who are paid for implementing bitcoin should work for different organizations

Audience: couldn’t you have another blockchain just for merkle roots? It could be very simple.

Gavin: You need transaction fees to prevent spam on the blockchain.

Peter: that’s why you need sidechain pegging.

Audience: what do you think about usability

Peter: there should be more single use wallets. There should be an accounting interface over bitcoind.

Oleg: your grandmother can barely secure here own computer. Idea: creating a social multisig where you have to sign off on your grandmothers transactions.

Panel: Technical Solutions for Going Mainstream

Mike: what does it main for bitcoin to be mainstream. How can we ask ‘we finally made it’

Fred: broad consumer adoption – some majority of people are using it for everyday transactions. Could I reasonably send this to my mom and she gets some utility of it. People who are not necessarily technologically advanced but they’re getting utility out of it. E.g. have you used this or has one of your friends.

Marc: if my neighbor who is 60+ uses bitcoin. If I go anywhere that accepts credit cards. If it was being used as broadly as credit cards.

Eric: we want every merchant in the world to accept bitcoin and we won’t stop.

Mike: if you actually get every merchant in the world I’m going to start a new company that won’t accept it

Gavin: mainstream adoption would be for everyone using a distributed blockchain for the everyday business. Not necessarily just for payments, but to “decentralize everything”

Will: We’re not going for mainstream adoption but ubiquity. You don’t look at the internet and say “when is everyone going to use Yahoo as their homepage”

Mike: Bitcoin is clearly not mainstream today, but what is the growth rate of some of your companies.

Will: We launched our multisig in August. With our enterprise product, hedge funds, family office investors, we’re not really teaching the market how to use bitcoin. I’ve been amazing at how deep the knowledge for bitcoin as a capital asset actually is.

Fred: we’re seeing the same – much inbound merchants. On coinbase we have 1.2M users. There’s definitely influx corresponding to the exchange rate.

Mike: it feels like merchants are beating down our doors, but buyers aren’t really spending. For merchants it’s a no brainer, but how can we make it compelling to buy something with bitcoin.

Fred: on the merchant side, its a no brainer. But on the consumer side you face the volatility risk.. It might make sense in micro payments, e.g. things that weren’t possible before. E.g. cases where you pay less than a dollar. It’s great to get big retailers, but we need to give incentives to spend. There are a few gaming companies, Big Fish Games. Step function of read partial article vs. pay $12/mo in reading.

Mike: if you could make one change to the core bitcoin technology what would it be?

Fred: the change address causes a lot of problems.

Mike: and thats coming, it’s part of BIP 70

Mac: I’d change a better address form

Eric: the consumer case is pretty clear. We’ve be spoiled with a fairly stable currency. Our team in Argentina wants to get paid in bitcoin because bitcoin is more stable than their local currency. Top change: refund addresses need wider adoption. Dispute mediation is critical, but it needs to be another service.

Will: its cumbersome for consumers, so how do you take the credit card fee and fraud savings and pass them on to consumers? E.g. gyft. Some systems are whale-driven economies and you just need to convince the whales to use bitcoin. BIP 16, BIP 32, BIP 70 – lets pick these standards and move forward.

Mike: how much do you think unusual ways of paying will contribute to bitcoin adoption.

Fred: i think credit cards will go away. Although, credit card experience is very easy, easier than QR code scanning. Though that’s US focused, here we have to put in a pin. Microtransactions for gas or wifi in real time. The idea is payments can become less of an active activity and more of a passive activity. E.g. sending email or reading an article.

Marc: paying your rent with bitcoin, but the problem is the exchange rate is changing every month

Eric: what if you car knew how to pay for you. What is an interface? What’s going to drive bitcoin forward is when its faster and simpler than using cash. Almost entirely invisible.

Will: auction-based payment modals between machines is where i see the future going

Mike: Many of the places that accept bitcoin are small merchants. Ultra low-tech, they don’t take any electronic point of sale they only have a paper point of sale.

Fred: you have to have an accurate fee structure. E.g. $5 minimums on credit cards is annoying for everyone. Merchant acquirers are boots on the ground that are trying to sell the processing. But with bitcoin the technology is so low you can just print a piece of paper.

Will: I bought a piece of coffee with bitcoin at coupa cafe and it took 45 minutes and that cup of coffee probably cost $300 by now.

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Why, Hello!

I'm Nate Murray and this is a blog I've been writing since 2007.
I work at IFTTT and I've been working with big data data since 2009. My work involves large-scale data mining, distributed computing, iOS & web apps. If you like this blog then you should follow me on twitter. Follow @eigenjoy